SIDBI Role in MUDRA

Small Industries and Development Bank of India (SIDBI) was established in 1990 with the main objective of promoting and financing micro, small, and medium enterprises in the country. The government of India has created a Credit Guarantee Fund (CGF) for Micro Units Development Refinance Agency (MUDRA) loans and for converting MUDRA Ltd. into MUDRA Small Industries Development Bank of India (SIDBI) Bank as a wholly owned subsidiary of SIDBI. So it should be understood clearly that SIDBI is an apex small units development bank where MUDRA has been launched as a department of SIDBI. In present scheme of thing in so far as the creation of MUDRA Bank is concerned SIDBI is vested with the responsibility to implements government plan  in this context  and coordinate with other organizations whereas the major focal point in the creation of MUDRA is to augment the present state of Microfinance sector. Beside creating institution like MUDRA for making sure the flow of money for micro and small enterprises, the setting up of two credit guarantee funds has also been given green signal.

As has been elaborated in the words of Finance Minister Arun Jaitly, “The department of financial services sought approval to set up two credit guarantee funds. The first one is being established for the Mudra loans and another for Stand Up India.” MUDRA (SIDBI) Bank has taken up refinance operations and is also rendering support services with focus on portal management and also data analysis . The MUDRA (or SIDBI) Bank can play any role determined or assigned to it by Government.

Relationship between MUDRA and SIDBI

SIDBI is a development financial institution with multiple functions for the MSMEs (Micro, Small and Medium Enterprises) including financing and development responsibilities. It was established in 1990 it has become the principal financial institution for the promotion, financing and development of MSMEs. SIDBI gives refinancing as well as direct financing support to firms. Previously, it was the SIDBI that provided indirect loans to small units. The MUDRA aims to give loans below `10 lakh. Micro units are the domain of MUDRA. Under the existing arrangement, SIDBI gives loans for higher amounts. Hence, MUDRA is established as a subsidiary of SIDBI.

The two funds will take care of the loans  needs disbursed under the Mudra Yojana and the Stand-Up India scheme, and is concerned to  financially  support women entrepreneurs and those from backward classes. In this evolving scenario the Mudra agency (to be called the Small Industries Development Bank of India Bank), has been founded as a wholly owned subsidiary of the Small Industries Development Bank of India mainly to undertake refinancing operations. If the way the Mudra has been conceived it may replace   over a period of time, RBI, in the capacity of regulatory body for Microfinance sector which is housed by emerging NBFC-MFIs.

MUDRA not only  refinances other MFIs to finance SHGs (Self Help Groups) to promote micro entrepreneurship but also aims at creating a robust system which can walk extra mile to  reach the last under financed small scale unit that otherwise could not avail  of  benefit from institutional  sources of finance. It is heartening to note that an amount to the tune to Rs. 71,312 crores have been disbursed under MUDRA loans to Rs. 1.73 crores borrowers as on 1st January, 2016.

Difference between MUDRA and SIDBI

  • SIDBI is an apex small units development bank where MUDRA will initially be started as a department of SIDBI.
  • The role of SIDBI remains to promote and finance the small scale sector, implement government plans and coordinate with other organizations while the role of MUDRA has been conceived more in the context of present state of Microfinance sector.
  • Over a period of time, MUDRA, replacing RBI, may emerge as a regulatory body for Microfinance sector housed by emerging NBFC-MFIs. (This is vehemently protested by MFIs who wish to function under regulatory powers of RBI.)
  •  MUDRA may refinance other MFIs to finance SHGs (Self Help Groups) to promote micro entrepreneurship.

With MUDRA (SIDBI) Bank for refinance and NCGTC for credit guarantee the doors have been opened for MFIs to take the membership of Member Lending Institutions (MLIs) – though the provision of membership is based on the fulfilment on the criteria and conditions such as size, experience, an assessment of internal systems, processes and procedures, CRAR and other norms, capacity assessment rating, etc. Now the criterion to incentivize all MFIs who desire to become part of the Member Lending Institutions (MLIs) is on the basis of the cost of guarantee linked to rating and recovery performance which is an ongoing process. To sum up MUDRA (SIDBI) bank is to provide seed capital and technical support to the start ups business enterprises; coordinate with other stakeholders for the promotion of targeted  sectors or regions; financially sustain small scale industrial units of  both manufacturing and services and implement government projects focusing on  development of small scale units.

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